Is regulation and big banks participation the pill that the doctor ordered for Bitcoin companies to flourish?
Barclays and Circle through their path-breaking partnership have demonstrated that banks do not need to fear dealing with Bitcoin companies. One can expect many more cryptocurrency-based companies to enter the financial mainstream in the coming months.
UK e-money licence
Circle, the social payment network backed by Goldman Sachs, has launched its services in the UK. It has received an e-money licence and has partnered with Barclays in this initiative.
On 5 April, Circle was granted an electronic money licence by the Financial Conduct Authority (FCA), the U.K. financial regulator.
Barclays Corporate Banking has been chosen as a financial partner by Circle in this venture. Barclays will provide the infrastructure required for transferring sterlings between bank accounts and Circle.
Through this partnership, a Circle user will be able to send across dollars from the United States to another user, who will receive sterlings in the United Kingdom in a matter of minutes.
Open to Blockchain and Bitcoin
Banks all over the world are highly regulated and subject to Know Your Customer (KYC) and Anti Money Laundering laws.
They also play the role of an information gatherer and are supposed to inform financial regulators about any suspicious transactions.
The e-money licence granted by the FCA to Circle has enabled Barclays to enter into a partnership with Circle, without being unduly concerned about its counters being used for dubious transactions.
Barclays has been one of the earliest banks to acknowledge that it was open to technologies like blockchain and Bitcoin.
In June 2015, Barclays signed a proof of concept with Safello, a Bitcoin-based startup, to work on a payment platform. Safello was earlier chosen to be part of Barclay's Accelerator, a 13 week programme for start ups in financial services. In October 2015, Barclays signed contracts with 2 companies which use blockchain technology – Chainalysis (financial crime and security space) and Wave (blockchain-based shipping records).
While blockchain-based solutions provide huge advantages compared to legacy systems in terms of cost and time, banks are still loath to implement them because these solutions haven't been demonstrated on a large scale yet.
Bitcoin continues to be avoided because of the regulatory and compliance risks involved. Regulators have no sympathy for banks dealing with sanctioned countries (for e.g. BNP Paribas was fined USD 8.8 Bn in 2015) or criminals and given Bitcoin's pseudonymous nature, banks have in the past chosen to avoid dealing with bitcoins as well as most Bitcoin companies.